Paying Your Bills on Time Alone May Not Improve Your Credit Scores

Consumers who need to improve credit scores often run into the same advice -- pay your bills on time. Paying bills on time is extremely important; but, there are other methods to utilize. Paying your bills on time alone may not improve your credit scores.
Efforts to improve scores should involve as many methods as possible and here is one good reason. Let's say you pay an outstanding collection account expecting to see an improvement in scores. You could be waiting a long time because paying a collection account would not improve your scores; and, it will not remove it from your credit report.
Even though it is imperative to get current and stay current if you have missed payments, a negative item such as a collection account will remain in the negative category of your credit report. It does not matter if a collection account is paid or unpaid, it can remain on your report for 7 years.
According to FICO, the most widely used scoring model, payment history is 35% of your score. While 35% is a huge chunk there are other actions, in addition to paying bills on time, that can be taken in order to improve credit scores:
Reduce account balances
You may be paying bills on time but your score is stagnant. In this case you may be a little too close to your account limit. Try reducing your account balance to 10% of your available credit limit. If 10% of your available account limit is too restrictive; try reducing your account balance to no more than 30% of your available credit limit.
FICO likes to see as much space between your credit limit and your account balance as possible on revolving accounts such as credit cards. Owing a small amount of debt compared to having a high limit will help your improve credit scores. The amount owing on accounts is 30% of your score. FICO even looks at the number of accounts with balances.
Create a good credit mix
Consumers with installment loans such as a mortgage or auto loan; along with revolving credit such as credit cards are considered to have a good credit mix. FICO looks at the variety of credit accounts contained in your credit report. Credit mix accounts for 10% of your score.
An installment loan typically holds a little extra weight than a credit card. Consumers with installment loans, as long as they are current, may enjoy a higher credit score. Installment loans show how well you manage debt. But do not open accounts just to have a better credit mix unless you can responsibly manage the new credit. Avoid opening accounts if you cannot pay them on time.
A good rule to remember if you are going to apply for an installment loan is to do your shopping within a specific timeframe. For instance, when shopping for the best interest rate for a mortgage loan FICO gives you 45 days to find the best rate. Within that timeframe every credit inquiry related to the mortgage loan will only count as one credit inquiry. When shopping for a car loan you have 14 days to find the best deal. Within that 14-day period all credit inquiries will only count as one credit inquiry.
Do not ignore bad credit
You must have credit in order to rebuild credit and show you can manage credit accounts responsibly. Consumers with bad credit or little credit pose a higher risk than consumers who have shown they can successfully manage credit and debt.
Opening new accounts responsibly, keeping account balances low along with creating a good credit mix will improve your credit scores. You must concentrate your efforts on more than just paying bills on time in order to improve your credit scores.